Industrial Parks: Recent Amendments in Regulation

09/ 08/ 2022

In this issue Definition of the industrial parks and state support for its residents Tax incentives for the residents of industrial parks Customs incentives for the residents of industrial parks In 2012, in order to promote the development of industries in Ukraine (and especially in certain regions), a mechanism of industrial parks was introduced, which was significantly revised in September 2021. On June 21, 2022, a number of laws of Ukraine were adopted with the aim of creating a legislative framework for providing the initiators and residents of industrial parks with tax and customs incentives provided by law. Definition of the industrial parks and state support for its residents. According to the Law of Ukraine “On Industrial Parks” (as amended by the Law of Ukraine dated September 7, 2021), an industrial park is defined by the initiator of the creation of the industrial park territory, equipped with necessary infrastructure, on which its residents may conduct their economic activities in defined spheres: processing industries (excluding production of excisable goods, except vehicles), recycling of household and industrial waste (except waste disposal), scientific and technical activities, activities related to IT and electronic communications. It is forbidden to conduct activities in the spheres of gambling, lotteries, assistance with employment in foreign countries, or industrial fishing outside of Ukraine, as well as growing plants included in the list of drugs and precursors. The law on industrial parks regulates a number of issues, in particular: the right to create an industrial park, requirements for the land plots on which industrial parks may be situated, objects that may be situated on the territory of the park, the procedure for creating and liquidation of such parks, the rights and obligations of the parties in the process of creation of industrial parks, conducting economic activities within industrial parks, state support for the creation of industrial parks. All industrial parks are included in the state registry of industrial parks. According to the law, residents and initiators of the industrial parks have access to a number of means of state support, including: partial or full compensation of interest on loans, needed for conducting economic activities within industrial parks; financing building of supporting infrastructure of the industrial parks; compensation of costs of connecting to engineering and transport networks; tax and customs incentives. Tax incentives for the residents of industrial parks. On June 21, 2022 the Law of Ukraine on the amendments of the Tax Code of Ukraine in part concerning the functioning of industrial parks, which provides the following tax incentives for the residents of industrial parks: Corporate income tax (CIT) exemption for residents, conducting the economic activities allowed in the industrial parks by the law, provided that the resident of the industrial park will have the status of such a resident for at least 10 years, and during these 10 years exclusively on the territory and within the boundaries of the industrial park; at the same time, such incentive cannot be provided if the resident has among its owners’ legal entities – organizers of gambling, registered in offshore zones, or registered in jurisdictions included in the FATF list of countries that are not cooperative in terms of counteracting money-laundering; IMPORTANT! Money, provided as a such exemption, may be used exclusively for the development of the resident’s activities within the industrial park within the year following the year in which such exemption was provided – otherwise, the resident has to pay the sum of CIT that was neither paid nor used for reinvestment and fine for late payment of CIT, and looses the right for CIT exemption for the next period. VAT exemption for import of equipment, necessary for conducting economic activities within the industrial park; in case the resident transfers such equipment to the third person, uses equipment for other purposes, or loses the status of the resident of the industrial park earlier than five years after the date of the import, the such resident must pay a sum of VAT for such equipment, as well as fine for late payment of such VAT; in addition, the such exemption cannot be applied to equipment, originating or imported from aggressor state; Local self-governance bodies may introduce discounts for the real estate tax, land tax, and land rent payment rates for objects and land plots within the industrial park territory. Customs incentives for the residents of industrial parks. In addition to the tax incentives for the residents of the industrial parks, there are customs incentives, prescribed in clause 6 of article 287 of the Customs Code of Ukraine, which was added to the Customs Code after the adoption of the relevant Law of Ukraine on June 21, 2022: the residents have a right to customs duty exemption for the import of equipment, necessary for conducting their business. The article lists both the classification codes of the equipment that may be exempted, along with the list of requirements for such equipment and its use: only new equipment (produced not earlier than 3 years before its import to Ukraine and was not in use); imported for the use by the resident of the industrial park only, and cannot be transferred to a third party, lent, or leased for at least 5 years after the date of its import to the territory of Ukraine; does not originate from the aggressor state and is not imported from its customs territory. In case the business entity loses the status of the resident of the industrial park within 5 years after the date of the import of such equipment to Ukraine, such entity should pay the sum of customs duty for such equipment along with a fine for the late payment.

Photo credit: Clement Remond, unsplash.com

In this issue

Definition of the industrial parks and state support for its residents
Tax incentives for the residents of industrial parks
Customs incentives for the residents of industrial parks

In 2012, in order to promote the development of industries in Ukraine (and especially in certain regions), a mechanism of industrial parks was introduced, which was significantly revised in September 2021. On June 21, 2022, a number of laws of Ukraine were adopted with the aim of creating a legislative framework for providing the initiators and residents of industrial parks with tax and customs incentives provided by law.

Definition of the industrial parks and state support for its residents

According to the Law of Ukraine “On Industrial Parks” (as amended by the Law of Ukraine dated September 7, 2021), an industrial park is defined by the initiator of the creation of the industrial park territory, equipped with necessary infrastructure, on which its residents may conduct their economic activities in defined spheres: processing industries (excluding production of excisable goods, except vehicles), recycling of household and industrial waste (except waste disposal), scientific and technical activities, activities related to IT and electronic communications. It is forbidden to conduct activities in the spheres of gambling, lotteries, assistance with employment in foreign countries, or industrial fishing outside of Ukraine, as well as growing plants included in the list of drugs and precursors.

The law on industrial parks regulates a number of issues, in particular: the right to create an industrial park, requirements for the land plots on which industrial parks may be situated, objects that may be situated on the territory of the park, the procedure for creating and liquidation of such parks, the rights and obligations of the parties in the process of creation of industrial parks, conducting economic activities within industrial parks, state support for the creation of industrial parks. All industrial parks are included in the state registry of industrial parks.

According to the law, residents and initiators of the industrial parks have access to a number of means of state support, including:

partial or full compensation of interest on loans, needed for conducting economic activities within industrial parks;
financing building of supporting infrastructure of the industrial parks;
compensation of costs of connecting to engineering and transport networks;
tax and customs incentives.

Tax incentives for the residents of industrial parks

On June 21, 2022 the Law of Ukraine on the amendments of the Tax Code of Ukraine in part concerning the functioning of industrial parks, which provides the following tax incentives for the residents of industrial parks:

Corporate income tax (CIT) exemption for residents, conducting the economic activities allowed in the industrial parks by the law, provided that the resident of the industrial park will have the status of such a resident for at least 10 years, and during these 10 years exclusively on the territory and within the boundaries of the industrial park; at the same time, such incentive cannot be provided if the resident has among its owners’ legal entities – organizers of gambling, registered in offshore zones, or registered in jurisdictions included in the FATF list of countries that are not cooperative in terms of counteracting money-laundering;

IMPORTANT! Money, provided as a such exemption, may be used exclusively for the development of the resident’s activities within the industrial park within the year following the year in which such exemption was provided – otherwise, the resident has to pay the sum of CIT that was neither paid nor used for reinvestment and fine for late payment of CIT, and looses the right for CIT exemption for the next period.

VAT exemption for import of equipment, necessary for conducting economic activities within the industrial park; in case the resident transfers such equipment to the third person, uses equipment for other purposes, or loses the status of the resident of the industrial park earlier than five years after the date of the import, the such resident must pay a sum of VAT for such equipment, as well as fine for late payment of such VAT; in addition, the such exemption cannot be applied to equipment, originating or imported from aggressor state;
Local self-governance bodies may introduce discounts for the real estate tax, land tax, and land rent payment rates for objects and land plots within the industrial park territory.

Customs incentives for the residents of industrial parks

In addition to the tax incentives for the residents of the industrial parks, there are customs incentives, prescribed in clause 6 of article 287 of the Customs Code of Ukraine, which was added to the Customs Code after the adoption of the relevant Law of Ukraine on June 21, 2022: the residents have a right to customs duty exemption for the import of equipment, necessary for conducting their business. The article lists both the classification codes of the equipment that may be exempted, along with the list of requirements for such equipment and its use:

only new equipment (produced not earlier than 3 years before its import to Ukraine and was not in use);
imported for the use by the resident of the industrial park only, and cannot be transferred to a third party, lent, or leased for at least 5 years after the date of its import to the territory of Ukraine;
does not originate from the aggressor state and is not imported from its customs territory.

In case the business entity loses the status of the resident of the industrial park within 5 years after the date of the import of such equipment to Ukraine, such entity should pay the sum of customs duty for such equipment along with a fine for the late payment.